Services sector 'stalls' as growth slows to five-month low

Will Green is news editor of Supply Management
3 June 2015

Growth in the services sector declined at the fastest rate in almost four years during May, according to a survey of buyers.

The Markit/CIPS UK Services Purchasing Managers’ Index slumped to 56.5 in May, down from 59.5 in April and a five-month low. It was the steepest drop since August 2011. A reading of 50 indicates no change.

At the same time cost pressures reached an eight-month high and firms increased their own charges, having discounted in April.

David Noble, group CEO, CIPS, said: “Momentum in the sector stalled in May, with the drop in the headline index the biggest fall for almost four years and likely to cause concern as services remains the UK’s largest driver of economic growth.”

Outstanding work continued to rise, despite strong workforce growth, while firms reported lower business uncertainty following the General Election.

Just over half of respondents predicted growth over the next 12 months, compared with just 7 per cent who expected a decline.

Input prices increased in May, compared with January’s five-and-a-half year inflation low, and firms linked these cost pressures to salaries, fuel and some foodstuffs.

Noble said: “The effect of pre-election uncertainty was largely dissipated. The sector retained a good level of activity and faced slightly raised input prices for fuel and commodities, some of which were passed on to consumers as the threat of deflation receded somewhat.”

Chris Williamson, chief economist at Markit, said: “Recent weakness in manufacturing and construction has spread to services. Overall growth in May across all three sectors was the lowest since December and the second weakest for two years.

“The lacklustre growth picture will be a concern to policymakers and effectively kills off the chances of any imminent hiking of interest rates by the Bank of England.

“Rate hikes later this year should not be ruled out: there are signs that the disappointing rate of expansion is only temporary, linked to uncertainty surrounding the General Election, and the surveys point to rising inflationary pressures as well as a further tightening of the labour market.”

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